Disaster Resilience and Asset Prices

By M. Pagano, Christian Wagner, Josef Zechner. Social Science Research Network, 2020

195 citations recorded by the source corpus.

This paper investigates whether security markets price the effect of social distancing on firms' operations. We document that firms that are more resilient to social distancing significantly outperformed those with lower resilience during the COVID-19 outbreak, even after controlling for the standard risk factors. Similar cross-sectional return differentials already emerged before the COVID-19 crisis: the 2014-19 cumulative return differential between more and less resilient firms is of similar size as during the outbreak, suggesting growing awareness of pandemic risk well in advance of its materialization. Finally, we use stock option prices to infer the market's return expectations after the onset of the pandemic: even at a two-year horizon, stocks of more pandemic-resilient firms are expected to yield significantly lower returns than less resilient ones, reflecting their lower exposure to disaster risk. Hence, going forward, markets appear to price exposure to a new risk factor, namely, pandemic risk.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/d8691ce299e018cb7c15414ce6d3a0e1854f7333

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

1. Steven J. Davis
2. Nicholas Bloom
3. Jose Maria Barrero
4. Thomas Heyden
5. Kim J. Heyden
6. Nils Engelhardt
7. Jens Ekkenga
8. Peter N. Posch

In Finance

1. Thomas Heyden
2. Steven J. Davis
3. Kim J. Heyden
4. Nicholas Bloom
5. Angus Moore
6. Marina Azzimonti

Citations in the corpus

• Resiliency of Environmental and Social Stocks: An Analysis of the Exogenous COVID-19 Market Crash (2020, unknown): “Stocks with high ES ratings were not the only stocks to perform better during the first quarter of 2020. Acharya and Steffen (forthcoming) provide evidence that firms with access to liquidity perform better during the first quarter. Ramelli and Wagner (forthcoming) show that nonfinancial firms with ”
• Market reactions to the arrival and containment of COVID-19: An event study (2020, background): “, 2020) suggest that the pandemic’s effects are not regarded to be temporary (Zechner et al., 2020).”
• Investor rewards to environmental responsibility: Evidence from the COVID-19 crisis (2021, unknown): “Relying on measures recently introduced in labor economics, Pagano et al. (2020) show firms that are more resilient to social distancing significantly outperformed those with lower resilience during the COVID-19 outbreak.”
• COVID-19 Is Also a Reallocation Shock (2020, background): “23 Pagano et al. (2020) also find much higher returns in the wake of COVID-19 at”
• Does CSR matter in times of crisis? Evidence from the COVID-19 pandemic (2021, unknown): “Our study relates to a growing literature examining the effects of the COVID-19 pandemic on stock returns (e.g., Alfaro et al., 2020; Bretscher et al., 2020; Fahlenbrach et al., 2020; Pagano et al., 2020; Ramelli and Wagner, 2020).”
• How Did COVID-19 Affect Firms’ Access to Public Capital Markets? (2020, unknown): “4For an analysis of how various measures of resilience to social distancing affects asset prices, see Pagano et al. (2020). regressions for firms operating in retail trade, restaurant, hotel, and transportation industries.”
• The Role of Corporate Culture in Bad Times: Evidence from the COVID-19 Pandemic (2020, unknown): “Pagano et al. (2020) show that firms that have flexible work-from-home arrangements significantly outperform those that do not have such arrangements during the COVID-19 outbreak.”
• ESG Ratings and Stock Performance during the COVID-19 Crisis (2021, background): “Further, firms which face a lower exposure to the pandemic [55,56] as well as firms which are more immune to social distancing policies [57], exhibit better financial performance.”
• Why Working from Home Will Stick (2020, background): “Davis et al. (2021), Favilukis et al. (2020), Pagano et al. (2020) and Papanikolaou and Schmidt (2020) study the relationship between firm-level stock returns during the COVID-19 pandemic and the capacity of their employees to work from home.”